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Red-tape Belgium falls behind euro zone peers

Bernard Mickael, 35, from France, worker at Belgian company Picanol, demonstrates to Reuters journalists how iron is melted for the company'
Bernard Mickael, 35, from France, worker at Belgian company Picanol, demonstrates to Reuters journalists how iron is melted for the company'

(Please note strong language in line 62)

By Robin Emmott and Ben Deighton

CHARLEROI, Belgium (Reuters) - Just a day after giving birth, Belgian entrepreneur Esmeralda Desart was back at work running her export business, putting in the kind of 16-hour day that has become the norm since she started up a company selling printer parts in 2007.

Refused bank loans, looking after a baby was just one more concern as Desart confronted the problems of red tape and rising costs that entrepreneurs say are making her homeland at the heart of the euro zone a bad place for business.

Her struggle to set up a company is emblematic of the wider frustration among entrepreneurs, who say Prime Minister Elio Di Rupo's boast to global business leaders at Davos that "Belgium is back" as a centre for innovation has a hollow ring.

"They don't make it easy," Desart, 44, said at her prefabricated orange office near Charleroi airport, south of Brussels. "And I only employ 15 staff. If Europe is going to create jobs, they need thousands of people like me."

Desart left a steady job with little more than her savings and her enthusiasm to set up an Internet-based business set to generate 15 million euros ($19 million) in sales this year.

A small regional grant she obtained requires her to run operations from a drab industrial park near Charleroi, away from her family in Brussels.

Trying to emerge from three years of crisis, the European Union has mandated deep reforms to help revive the continent's weakened economy, but Belgium, home to the EU's headquarters, has enacted very few of those changes.

Italy, Spain and Portugal have been forced to confront bloated public finances and fading business dynamism. But entrepreneurs in wealthier northern nations like Belgium say their governments feel no such urgency to cut regulatory red tape, confront powerful trade unions and modernize.

Belgium, France, Luxembourg and the Netherlands have been struggling with stagnation since 2011 and are neither keeping up with Germany nor reforming like southern Europe.

That could potentially shrink the euro zone's core, and cast more doubt on the bloc's credibility with investors.

SLIPPING

Belgium is struggling to remain a dynamic, hi-tech economy with the world's 12th highest per capita income at the centre of the 17-nation currency area.

The country fell eight places in the World Bank's ranking on the ease of starting a company this year compared to 2012, to 44th place out of 185 economies. When it comes to the ease of doing business, it slipped two spots to 33th place.

"Belgium must decide whether it is part of northern or southern Europe," said Jo Libeer, the head of the business chamber in Flanders, the country's wealthy northern region that has an ageing population and a growing mismatch between workers' skills and the jobs on offer.

Take the "Uplace" shopping centre planned for Mechelen, just north of Brussels, a development that would revive an abandoned area next to a former Renault car factory, to create 3,000 jobs.

Its backers hoped the luxury mall and offices would open last year, having secured the site in 2007. But a long list of permits - including one needing the approval of 14 government agencies - has meant it will now not open until 2016.

In Brussels, telephone company Belgacom has been blocked from installing a new, high-speed "4G" mobile network already used in Germany and the United States because of the city's strict radiation regulations.

"People need 4G, and what does Brussels say to them? Fuck you," Didier Bellens, Belgacom's head, told reporters.

Bureaucracy is swollen by Belgium's division into three regions and three partially overlapping linguistic communities, plus cities and local councils. In total, the country of 11 million people has six parliaments.

Such obstacles might be overlooked in boom times, but the economies of Belgium and the Netherlands will shrink for the second straight year in 2013, after a recession in 2009, while Germany is likely to see its output rise slightly.

With their trade-friendly location between Germany's industrial belt and the North Sea, Belgium and the Netherlands traditionally tracked or outperformed their biggest trading partner. But since 2010, Germany has been pulling ahead.

Belgium is the worst performer. Compared to regional peers, salary costs are more than 10 percent higher than the average in Germany, France and the Netherlands. What is more, the gap is widening, according to the Federal Planning Bureau, the agency on whose data the government bases its budgets.

One reason is that Belgium and Luxembourg are the last countries in Europe to keep automatic wage indexation, meaning wages go up in line with inflation regardless of productivity and the wider economy.

Administrative charges on companies rose 7 percent from 2008 to 2010, reversing a previous fall, the Federal Planning Bureau said, because Belgium has been slower than other countries to move services online.

WAGE COSTS

According to data collected by retailers' lobby Comeos, Belgian firms pay as much as 25 percent more to employ someone than neighboring countries.

"The hourly cost of wages is the highest in the whole euro zone," central bank governor Luc Coene told Le Soir newspaper. "The first thing to do is to reduce the charges on employment."

That is a result of trade union power in Belgium, where unionization is second only to Nordic countries in Europe.

Major decisions must be agreed with the unions, causing deadlock on many issues relating to labor reform and wages. One large Belgian retailer spent 10 years negotiating with unions before it could open 30 minutes earlier on Saturdays.

"We have this tradition of discussion and agreement, but now we've gone too far," said Dominique Michel, the head of Comeos. "We start negotiating and it takes forever, and that's a very bad system."

REFORM FOR ALL

With youth joblessness as high as 40 percent in some parts of Brussels, and national unemployment at a 15-year high, Belgium is nearing a critical point.

Ford Motor Co closed its car plant in the eastern city of Genk last year, moving the production of its Mondeo mid-size cars and Galaxy minivans to Spain in search of cheaper labor.

Caterpillar, the world's largest maker of construction equipment, plans to cut 1,400 jobs at a plant near Charleroi due to the high costs of operating in the country.

"Factories are being moved from the north to the south as we speak," Jeroen Dijsselbloem, the Dutchman who chairs meetings of euro zone finance ministers, told the European Parliament in March. "Reform isn't just an issue for the south. It is basically an issue for all countries."

Prime Minister Di Rupo says Belgium is one of the world's most open economies and he promised in Davos his government would do "our utmost to make sure that our economy will be one of the most creative in the world".

But the country's leading politicians have declined to take on the unions, leaving companies increasingly reliant on temporary contract workers who go from job to job.

Di Rupo's message also jars with the experience of entrepreneurs such as Desart, at a time when Europe's future rests on the shoulders of people like her.

"We don't have a God-given right to prosperity," she said. "Northern Europe's future lies in services and innovation, not in big factories, but we need governments and banks behind us. If we can't reform, why should our businesses even exist?"

(Reporting by Robin Emmott and Ben Deighton; Editing by Paul Taylor)

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